RoTek Has a Capital Structure of $300,000 in Equity and $300,000

question 61

Multiple Choice

RoTek has a capital structure of $300,000 in equity and $300,000 in perpetual debt. The firm's cost of equity is 14% and its cost of debt is 9%. If the firm has an expected, perpetual net operating income of $120,000 and a marginal tax rate of 40%, what is the market value of RoTek? Assume all net income is paid out as dividends.

• A) $698,571
• B) $814,286
• C) $818,571
• D) $55,800

---

Definitions:

Fixed Salary

A consistent set amount of pay received by an employee, typically on a monthly or bi-monthly basis, regardless of hours worked.

Business Risk

The potential for a company to experience losses or fail to achieve its financial goals due to economic conditions, operational issues, or other unforeseen factors.

Economic Profit

The total revenue a firm earns minus both its explicit and implicit costs, representing surplus value created from production.

Economic Loss

A monetary loss that occurs when the cost of producing a good or service exceeds the revenue gained from selling it.